India Journal: A Sree Padmanabhaswamy Sovereign Fund?

What happens when poor, democratic and religiously minded people come into immense amounts of wealth? Whom does it really belong to? And what should they do with it? These are the questions India, and particularly the state of Kerala, faces today.

Over a fortnight ago, the cellars of the centuries-old Sree Padmanabhaswamy temple in the city of Thiruvananthapuram in southern India were opened. These cellars hadn’t been opened for perhaps 150 years, the Associated Press reported soon after the discovery. While the “mathilakam,” or records kept by the temple administration, and popular belief had always held that a great deal of wealth lay beneath the temple, the vaults revealed “staggering riches.”

The reported value of the treasure is around $22 billion. What the exact number after an audit will be is largely irrelevant for now. Even a quarter of that amount poses a challenge for the state government. Kerala is a sliver of an economy in southern India with 33 million people and a gross state domestic product $45-50 billion: monetization of any kind from these treasures could easily overwhelm the state’s finances and aggregate demand.

The political class – by and large – has stuck to the “let the Supreme Court decide” line of argument. The discovery of the temple’s treasures came during an audit of its assets at the instructions of the Supreme Court, which was hearing a dispute over who should administer Sree Padmanabhaswamy. Rumbles have however slowly begun on what is to be done. Most prominently so far, Jameela Prakasham, a lawmaker from the Kovalam constituency near the temple, has put forth the suggestion that a committee be formed to oversee the treasure management and its monetization.

The committee, she suggested, could include top members of the state government, the state opposition and the Travancore royal family, which has been managing the temple. Whether this is a political trial balloon set afloat to assess public reaction or not is unclear. What is evident is that the original argument, made by temple officials and backed by the state government, that the treasures belong to the temple alone is gradually under assault.

Amongst other arguments, one that is likely to gain adherents, perhaps even among the judges of the Supreme Court, goes as follows: Much of this treasure was a byproduct of taxation and trade, over the centuries, by the erstwhile Travancore kingdom, the precursor to the state of Kerala. Levies paid by all communities, castes and religions were likely deposited at the temple, for the temple was considered among the more secure places for wealth before India had its post-independence financial architecture in place. In the democratic Republic of India, these riches belong neither to the kingdom nor to the temple, which no longer needs to act as a secure facility, but to the people and, by virtue of extension, the state machinery.

Some have argued that the gold be used as collateral to issue bonds and finance expenditure programs. Others have argued that slum improvement is the way to go. The royal family of Travancore, who are the present guardians of the temple, and therefore of its treasure, have argued that these riches should be used for renovating temples and “public uplift[ment].” Others with a more conservative bent of mind have argued that nothing corrupts society like “easy money,” and the best thing would be to set up a museum, or let the wealth remain in the cellars.

Yet, this question of what to do with sudden riches is not exactly unique, even if the conditions under which we ask this question are. Other countries have struggled with similar questions as well, such as Norway after discovery of oil in its North Sea waters in 1969, and can offer some alternatives that Kerala and India can look at.

Norway used a portion of its oil wealth to set up a Government Pension Fund Global. This was, in essence, a sovereign wealth fund that chased returns for its investors, the Norwegian people, while investing with certain ethical principles (it doesn’t invest in cigarette companies, for example). The fund takes in proceeds from the oil trade and invests these to help facilitate Norway’s pension commitments as its population ages. It is run by group of independent professionals who report to various government agencies and legislative bodies including Norway’s Parliament, central bank and auditor general.

Over the years, the fund has invested abroad (thus preventing local inflationary pressures) and has selected a judicious mix of fixed income and equity portfolio. What is most relevant for Kerala is that, should such a model be replicated, the average person would feel that he or she has a stake in the global economy and in the safekeeping of the endowment. Other countries like the United Arab Emirates and China have also gone about setting up sovereign wealth funds that help avoid disturbing a region’s economic equilibrium while still investing on behalf of its people. From the Norwegians we can learn about the elaborate governance processes they have put in place to prevent corruption and loss of capital.

There are other advantages to thinking along the lines of a “Sree Padmanabhaswamy Fund.” Kerala remains an agricultural society and a remittance-based economy. Its primary goods are coconuts, spices, rubber and cashew nuts. The prices for trading these commodities are set on exchanges in London, Kuala Lumpur and New York, far removed from where farmers live and work. When prices fall, farmers are crushed under debt and the state’s finances and bureaucracy aren’t able to compensate adequately for these losses. Suicides by farmers, crushed by debt, are commonplace across the northern districts of Kerala. A fund that invests in global commodities could hedge against this risk and a government agency could distribute the proceeds to farming communities.

As India continues to integrate itself into the global economic system, this find of gold and jewels in Kerala offers an opportunity to minimize the negatives shocks that global capitalism is capable of inflicting. Such an approach could protect the state from the effects of too rapid monetization, which might easily include “white elephant” projects across the state. To leave it in the temple would be an acquiescence to well-meaning but obscurantist sentiments. That would be a travesty. To do the right and smart thing, Kerala and India need to actively participate in the global economic system to leverage the best results for their citizens.

Keerthik Sasidharan works for a European investment bank in New York City. Follow him on Twitter @ks1729. All opinions expressed here are personal and do not reflect the views of his employer, co-authors or other affiliations. (Photo: Nithin Krishnan/Courtesy Keerthik Sasidharan)